Dollar gains as traders await delayed data

WilliamL. Watts

SaumyaVaishampayan

NEW YORK (MarketWatch) — The dollar scored minor gains versus rivals Monday as traders awaited a round of U.S. economic data, including September nonfarm payrolls, previously delayed by the government shutdown.

The ICE dollar index
DXY, -0.30%
which measures the U.S. currency against a basket of six major rivals, inched up to 79.674, compared with 79.649 late Friday in North America.

The dollar dropped last week in the wake of a deal to end the government shutdown and raise the federal debt ceiling, thus allowing the U.S. government to avoid a default. The episode is expected to have dented economic growth while potentially undermining the dollar’s standing, analysts said.

Overall, the dollar’s weaker tone “might reflect a more general risk-on move as the uncertainty surrounding the debt ceiling is lifted,” said Steven Barrow, currency strategist at Standard Bank in London. “A different and more sinister view is that it reflects exasperation at U.S. government policy ineptitude that may have longer-term connotations for the dollar even once any risk-on period passes. Our view is that probably both these things are at work.”

Existing U.S. home sales edged down a seasonally adjusted 1.9% in September to an annual rate of 5.29 million from 5.39 million in August, according to data released by the National Association of Realtors on Monday.

September nonfarm payrolls and other labor-market data will be released Tuesday at 8:30 a.m. Eastern, 18 days behind schedule. Economists polled by MarketWatch expect the report to show 185,000 new jobs were created last month, while the unemployment rate is forecast to remain at 7.3%. The labor-market data play a major role in the Federal Reserve’s decision on when to begin slowing its monthly bond purchases of $85 billion. The Fed’s stimulus has been understood to weigh on the dollar.

The euro
EURUSD, +0.4665%
traded at $1.3682, essentially unchanged from late Friday’s $1.3680. The shared currency last week briefly topped the $1.37 level, moving within striking distance of its calendar-year high from early February. At that time, the euro’s strength provoked a verbal warning by European Central Bank President Mario Draghi. A strong euro could pose a threat to the euro zone’s fragile economic recovery, analysts note.

The British pound
GBPUSD, +0.1346%
slipped to $1.6148 from $1.6168 at the end of the previous week.

Despite Monday’s modest dollar gains, Royal Bank of Canada senior currency strategist Sue Trinh noted that the dollar remained not far from its lowest levels of the year, with the market pricing in a delayed start to the Federal Reserve’s plan to slow the pace of its stimulus. Such a delay to the Fed’s so-called “taper” was based on the central bank’s likely concern over another battle in Congress that could again shut down government operations or threaten a U.S. default.

“Our U.S. strategists’ base case is a March 2014 start to tapering, but a Feb. 7 debt ceiling suggests the risk is that tapering could be pushed out into the second quarter,” Trinh wrote Monday, referring to the February date at which the current U.S. borrowing authority granted by Congress runs out.

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Crédit Agricole strategists agreed, saying they “expect a shift in consensus surrounding [the Federal Reserve’s] tapering commencement from the Dec. 18…meeting until January (or possibly later) to undermine the U.S. dollar next week.”

They said the projected weakness for the dollar would be to the benefit of the euro, which could also gain as investors use the U.S. unit as a carry currency, borrowing in dollars to lend or invest in euros.

As a result, they said in a note Monday, the European currency “could comfortably trade above $1.38 in coming weeks.”

Among the top Asian currency pairs, the dollar rose against the Japanese yen
USDJPY, -0.20%
to buy ¥98.18, up from ¥97.84 Friday, while the Australian dollar
AUDUSD, +0.1508%
changed hands at 96.53 U.S. cents, down slightly from 96.67 U.S. cents.

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